America Must Play the Geoeconomics Game

Editor’s note: this article is adapted from a presentation that Amb. Robert D. Blackwill gave at the Naval War College’s Current Strategy Forum on June 15, 2016.

I am delighted to be back at the Naval War College. What I am about to say on the issue of geoeconomics is drawn from my recent book, War by Other Means: Geoeconomics and Statecraft, which I coauthored with Jennifer Harris of the Council on Foreign Relations, and which was published in April of this year by Harvard University Press.

What Is Geoeconomics?

Despite having the most powerful economy on earth, the United States too often in the past several decades has increasingly forgotten a tradition that stretches back to the founding of the nation—the systematic use of economic instruments to accomplish geopolitical objectives. America has hardly outgrown its need for military force, which will remain a central component of U.S. foreign policy. But this large-scale failure of collective strategic memory regarding geoeconomics denies Washington potent tools to accomplish its foreign policy objectives.

The term geoeconomics is in much use today, but almost always without a specific working definition. Some authors tend to focus on the use of geopolitical or military power for economic ends. Others tend to define geoeconomics more broadly, as “the entanglement of international economics, geopolitics and strategy,” a kind of catchall definition that obscures more than it clarifies.

In the particular context of U.S. foreign policy, those who use the concept have primarily confined themselves to traditional examinations of international trade and sanctions. Typically, these inquiries depart from a narrow understanding of U.S. trade policy, but have no specific geopolitical dimension, apart, perhaps, from a widely held belief that expanded trade promotes peace. It is essentially trade for trade’s sake.

These and other earlier interpretations of geoeconomics are useful, but they are also incomplete. Strikingly, none of the existing written understandings of geoeconomics succeeds in comprehensively capturing the phenomenon that, as a plain empirical matter, seems most responsible for the term’s recent resurrection: the use of economic instruments to produce beneficial geopolitical results. With this in mind, here is the Blackwill/Harris definition of geoeconomics:

“The use of economic instruments to promote and defend national interests, and to produce beneficial geopolitical results; and the effects of other nations’ economic actions on a country’s geopolitical goals.”

Who Uses It Well and How?

China is often correctly described as the world’s leading practitioner of geoeconomics. It is also the major reason regional and global power projection has become such an economic (as opposed to military) exercise. China curtails the import of Japanese autos to signal its disapproval of Japan’s security policies. It lets Philippine bananas rot on China’s wharfs because Manila opposes Chinese policies in the South China Sea. It rewards Taiwanese companies that march to Beijing’s cadence, and punishes those that do not. It promises trade and business with South Korea in exchange for Seoul rejecting a U.S. bid to deploy missile defense systems there. It reduces economic benefits to European governments that host the Dalai Lama. It initiates the creation of the BRICS group, consciously excluding the United States. It promotes the Chinese-led Asian Infrastructure Investment Bank to rival the Washington-based World Bank. In its economic assistance to Africa, it privileges nations that vote with China at the United Nations. It provides more loans to Latin American nations than the World Bank and International Monetary Fund combined. Its economic support props up the economy of Venezuela, the most anti-American regime in Latin America. The United States has no coherent policies to deal with these Chinese geoeconomic actions—many of which are aimed squarely at America’s allies and friends in Asia and beyond.

In addition to this rise of Chinese geoeconomic power, witness the return of Russia’s systematic destabilizing geoeconomic policies in Eurasia and beyond. Russia periodically shuts off energy to Ukraine in the winter to try to bring Kiev back within Moscow’s orbit. It intends to shift all natural gas flows crossing Ukraine to alternate routes circumventing the country to deprive Kiev of crucial transit payments. It threatens to reduce energy supplies to the European Union if Europe joins the United States in responding to Russia’s aggressive external behavior. It promises massive economic assistance to the annexed Crimea. It entices former EU leaders with lucrative contracts with Russian companies. It establishes the Eurasian Economic Union to tie countries in former Soviet space closer to Russia’s geopolitical preferences. After Warsaw’s strong reaction to Russia’s intervention in Ukraine, Moscow suspends imports of Polish cheese. It bans the import of Georgian wine because of Tbilisi’s determination to protect Georgia’s territorial integrity. It offers financial aid to Greece while EU leaders are attempting their own bailout package. It dangles the prospect of an economic bailout before Cyprus in return for military port and airfield access, forcing EU leaders to choose between crafting a sufficiently attractive bailout of their own, or living with a Russian military presence inside the European Union. It bribes the weaker, cash-strapped members of the EU in hopes of provoking a defection from the U.S.-EU sanctions against Russia. For all of the readiness drills and military commitments being undertaken by NATO leaders, the United States has no consistent policies to deal with Russia’s resurgent geoeconomic coercion.

The donor states of the Arab world’s economic powerhouse, the Gulf Cooperation Council, are equally uninhibited in their use of geoeconomic instruments. The Gulf states pledge $12 billion in 2015 as aid to Egypt, adding to the more than $20 billion already contributed since the military ouster of former president Morsi. Oman commits $500 million in aid and investment to Egypt. Riyadh provides economic support to Iraqi Sunni tribes fighting ISIS. Saudi Arabia and the United Arab Emirates together supply Jordan with more than $2 billion in annual aid, leveraging Amman to contain and dismantle the Muslim Brotherhood. With sums like these, the Gulf states have essentially set off a new great game in the region; the rules are geoeconomic, and once again, the United States does not appear to have any policy to respond.

So it is for many countries—the theater of foreign policy engagement has for some time been predominantly markets. Many states today are as likely or more likely to air disagreements with foreign policies through restrictions on trade in critical minerals or through the buying and selling of debt than through military activities. As one astute early observer of this phenomenon, Les Gelb, put it, “Most nations today beat their foreign policy drums largely to economic rhythms.”

After a Long History of Effective Application, Why Has the United States Lost the Capacity to Do So?

In the current era and across the political spectrum, the United States instinctively debates the application of military instruments to address these complex challenges. There is no comparable discussion in Washington of returning Ukraine to economic viability as a way to check Vladimir Putin’s designs for a Novorossiya, or “New Russia”; of prioritizing economic and financial denial strategies in the fight against ISIS; of making reform of the Egyptian economy a primary U.S. foreign-policy objective; of strengthening Jordan to withstand the effects of the Syrian conflict; of building a Middle East coalition to blunt the economic transmission lines Iran relies upon to project influence in the region; of mounting a major, patient effort to bolster the faltering Afghan economy, a prerequisite for defeating the Taliban over the long run; of building into the Trans-Pacific Partnership agreement or into the Asia pivot more broadly, defenses to help U.S. allies steel themselves against economic bullying from China.

Thomas Jefferson would have regarded this as exceedingly odd. He did not send the newly minted American army to conquer French territory between the Mississippi River and the Rocky Mountains; rather, in exquisite geoeconomic enterprise, he bought it. To help prevent London from supporting the Confederacy, the Lincoln administration threatened Britain with the loss of billions of dollars invested in U.S. securities. Government support for overseas private investment drove both American engagement with Latin America and the rebuilding of Europe in the 1920s. The Roosevelt administration in the 1930s deployed trade to preempt German encroachment in the Western Hemisphere and attempted to use the Export-Import Bank to blunt the rise of Japan.

A year and a half after the outbreak of World War II in Europe, the Lend-Lease policy of 1941 enabled the United States to supply Allied nations with defense materials needed to win that war. In July 1944, delegates from the Allied countries, led by the United States, signed the Bretton Woods Agreement, which was explicit in its hopes that strengthened international economic cooperation, built on U.S. and British terms, could help to avoid the horrors of another global war. Secretary of State George Marshall in June 1947, delivering commencement remarks at Harvard University, famously declared an archetypal geoeconomic proposition: “The United States should do whatever it is able to do to assist in the return of normal economic health in the world, without which there can be no political stability and no assured peace.”

By the Johnson and Nixon years, however, geoeconomics had noticeably begun to wane. The war in Vietnam pushed geoeconomics off the U.S. policy stage. It was perhaps inevitable that the outbreak of armed conflict and hundreds of thousands of U.S. troops on the ground in Southeast Asia would shift policy makers’ attention in the direction of military use of force. But this continued through the 1979–81 Iranian hostage crisis and the failed rescue attempt. It gained momentum with Washington’s military responses to the Soviet invasion of Afghanistan; the U.S. interventions in Angola, Lebanon, Grenada and Panama; the first Gulf War; the Clinton administration’s air campaign in the Balkans; 9/11 and the wars in Afghanistan and Iraq; the U.S.-led NATO intervention in Libya; the American drone and combat air attacks across the greater Middle East; and the reintroduction of U.S. ground forces in Iraq and deployment of special forces into Syria.

Even when policy makers’ attention turned from waging conflict to de-escalating it, the parameters of discussion stayed largely confined to conventional political-military concerns: arms-control negotiations, détente with the Soviet Union and diplomatic openings with Soviet allies, all assisted by largely political factors. And even in the rare cases when the United States did take on a geoeconomic project of some magnitude during this period—attempts to bring Russia and China into the Western economic order are far and away the most important example—these tended to remain geoeconomic attempts only briefly, before morphing into more straightforward commercial and purely economic ones. Geopolitical factors have not disappeared from these efforts, but they have become secondary if not tertiary considerations.

The decline of geoeconomics in American foreign-policy making in recent decades proves to be a complicated story, with lots of variables, subplots and nuances. But the short version is a combination of neglect and resistance. American economists tend to resist putting economic policies to work for geopolitical purposes, in part because the notion of subjugating economics in this way challenges some of their deepest disciplinary assumptions. As Michael Mandelbaum put it, “The heart of politics is power; the aim of economics is wealth. Power is inherently limited. The quest for power is therefore competitive. It is a ‘zero-sum game’ . . . Wealth, by contrast, is limitless, which makes economics a ‘positive-sum game.’” Because many U.S. economists and economic policymakers tend to see the world through this positive-sum logic and have little appreciation for the realities of power competition among nations, they tend to be skeptical of using economic policies to strengthen America’s power projection vis-à-vis its state competitors.

The notion has also encountered ambivalence from foreign policy strategists. Although they are steeped in traditional geopolitics and are not averse to viewing economic instruments of statecraft within a zero-sum logic, most strategists fail to recognize the power and potential of economics and finance as instruments of national purpose.

Thus, embraced by neither most economists nor most foreign policy strategists, the use of economic and financial instruments as tools of statecraft has become an orphaned subject. For a time, it seemed of no great consequence. In the years following the Cold War, the United States faced no serious geopolitical rival, no real struggle for international influence or in the contest of ideas. Liberal economic consensus pervaded. And as it did, what began as a set of liberal economic prescriptions aimed at limiting the rightful role of government in the market morphed over time into a doctrinal unwillingness to accept economics as subject to geopolitical choices and influence. Thus, certain liberal economic policy prescriptions, such as trade liberalization, that found favor initially at least in part because they were seen as advantageous to U.S. foreign policy objectives came over time to be justified predominantly on the internal logic of laissez-faire liberalism, not on the basis of (perhaps even in spite of) U.S. geopolitical grounds.

U.S. Geoeconomic Policy Prescriptions

Given the persistent use of geoeconomic instruments by China, Russia and others, there is no reason to expect that the issue or the stakes will diminish anytime soon. Washington’s focus should therefore shift to a new organizing question for U.S. foreign policy, namely: how does America maintain global leadership in an age importantly defined by geoeconomic power?

First and foremost, nothing would better promote America’s geoeconomic agenda and strategic future than robust economic growth in the United States. Economists are a contentious lot, but there is a wide, bipartisan consensus that U.S. growth over the next decade will require increased public and private investment in the near term, and a solution to U.S. entitlement pressures over the longer term.

In addition, the next president must speak to geoeconomic policy by laying out an affirmative vision for a geoeconomics-centered foreign policy. Without presidential geoeconomic leadership, Pavlovian political-military responses are likely to most often carry the day in Washington, and thus drive the bureaucratic responses to America’s external challenges. If America is going to be effective at exploiting its geoeconomic potential, it needs the right signals and bureaucratic structures in place, many of which can only come from the White House.

Put bluntly, the U.S. Congress is often a serious impediment to implementing a coherent and comprehensive American geoeconomic strategy. Thus, the incoming administration will need to adopt new rules of engagement with Congress. Because much of the needed U.S. geoeconomic agenda cannot be implemented without congressional approval, the leadership of the Congress should schedule a comprehensive set of hearings on the potential of the United States to use economic tools to further U.S. geopolitical objectives.

As Secretary of Defense Bob Gates urged, funds should also be shifted from the Pentagon to be used to promote U.S. national interests through geoeconomic instruments. The administration’s State Department budget request for fiscal year 2016 was $50.3 billion, while the Defense Department’s total request was $585.2 billion. Such a ratio is incompatible with an era of geoeconomic power projection.

The United States will also need to develop a more concerted understanding of geoeconomics across all executive branch agencies with responsibilities in U.S. foreign policy and national security. Such a conceptual framework should, at minimum, be capable of distinguishing geoeconomic from non-geoeconomic instruments and influence, as well as determining what makes them more or less effective; it should also offer policymakers a means of evaluating geoeconomic policy options against other policy alternatives.

For a decade or more, America’s economic relationships with many of its closest allies have lagged behind security cooperation. Thus it is time to reboot U.S. alliances for geoeconomic action focused as intensely on shared geoeconomic as on political and military challenges.

Geopolitical strategy by the United States in Asia cannot succeed without delivering on the Trans-Pacific Partnership (TPP). Even though TPP began as a straightforward exercise in liberalizing trade barriers, its geopolitical stakes are now real.

The United States should likewise conclude the TTIP agreement with America’s European allies. Nothing else will so further transatlantic geoeconomic prospects—especially if both sides seek to make this a trade agreement that prioritizes geoeconomic aims in its design choices.

The next administration should also construct a geoeconomic policy to deal with China over the long term. America’s economic pivot to the Asia-Pacific has lagged behind our diplomatic and military investments. But more than any other region, economics is the coin of the realm in Asia. As we now work out the content of the rebalancing, our strategy must change to reflect this basic reality.

In another aspect of rebalancing to Asia, the United States should make geoeconomic investments in India’s emergence as a Pacific power. With so much staked on an India that is growing economically and engaged regionally, supporting India in its bid for greater multilateral influence would seem a minimum ante for the United States.

To bolster the geoeconomic defense of Europe, Washington will need to construct a geoeconomic policy to deal with Russia over the long term. Working with the EU to initiate a new standing policy of jointly policing and punishing acts of geoeconomic coercion and intimidation in Russia’s “near abroad,” in whatever form, would not only help habituate the Europeans into swifter actions but also send stronger signals of U.S.-EU resolve to Moscow and to other countries that may be looking to visit similar tactics on their regions.

To shore up America’s geoeconomic potential, the next administration should seek to convert the energy revolution into lasting geopolitical gains. The strategic premium the United States can accrue from the unconventional energy boom is just as significant as the improvements seen in U.S. energy production. But the geopolitical benefits to America cannot be realized if the production of U.S. unconventional energy resources is not given the priority it deserves.

At the same time, the United States will need to meet the test of climate change. Like many other issues in the geoeconomic domain, solving the problem of climate change requires harmonizing domestic and foreign policies, an objective often not currently being accomplished.

If America is to retain its competitive economic edge in the twenty first century, it will need to blunt the threat of state-sponsored geoeconomic cyberattacks. The costs of geoeconomic-minded cyberattacks, especially by China, fall disproportionately on U.S. firms, as the leading suppliers of R&D and tech-intensive goods and processes. The next administration needs a robust policy to punish China for its systematic theft of American intellectual property.

The great cost in blood and treasure for the wars in Iraq and Afghanistan demonstrates the necessity for Washington to reinforce economic foundations for democracy and peace in the Middle East and North Africa. For the past few years, as the Arab revolt has grown darker, the United States has by necessity focused on immediate stabilization, but with paltry results; a broader, longer-term vision can no longer wait, especially as the lack of such a vision is hampering our ability to manage the short-term challenges.

In the global south, Washington should refocus U.S. development aid toward cultivating the next generation of emerging markets, especially in Latin America and Africa.

The United States should also shore up the rules governing geoeconomic playing fields. In a world of competing global supply chains and integrated capital flows, trade rules that focus largely on tariffs, national treatment and most-favored-nation status are outdated and permit nations to pressure recalcitrant neighbors through geoeconomic means. The harmful practices tend to be fluid, and where one is struck down or becomes too controversial, governments can all too easily reintroduce it with only slight refinement. In this regard, the United States needs to be as nimble as its adversaries.

Last, we should make every effort to increase university teaching around geoeconomics, perhaps including here at the Naval War College. Geoeconomics needs its own disciplinary language, one that marries the tools of economics with the logic of geopolitics. Only by endowing geoeconomics with its own analytic framework can policymakers approach these questions clearly.

Either the United States will begin to use its geoeconomic power with much greater resolve and skill, or its national interests will increasingly be in jeopardy. U.S. domestic economic strength in the decades ahead must have more relevance to American national interests and the identification of consequent international threats and opportunities than simply funding a huge defense budget, useful as that is to U.S. global purposes. To recall Mao, international power and the influence needed to flourish and to shape the balance of power in America’s favor must derive not only from the barrel of a gun but also from the strength and geopolitical applications of the U.S. economy. Whether administrations and the Congress will understand, digest and implement this compelling reality with focus, clarity and a sense of geoeconomic purpose remains a preeminent issue of American grand strategy in our era.

Robert Blackwill is Henry A. Kissinger senior fellow for U.S. foreign policy at the Council on Foreign Relations (CFR). His newest book, War by Other Means: Geoeconomics and Statecraft, coauthored with Jennifer M. Harris, was published in April 2016 by Belknap Press, an imprint of Harvard University Press.